Vendors and Consultants are but a small portion of the industry, and the economy … as Buyers, you work for organizations that compose the majority. The only way we’re truly going to get back to business-as-usual is if you use the vision provided by the vendors to identify what clarity you need, bring in consultants to help you realize it (and the significant ROI that accompanies it), and then use your newfound “savings” to procure the best-of-breed sourcing, procurement, and supply chain visibility technology offered by the visionary vendors, as this is the technology that will help you increase productivity and significantly reduce your costs across the board.
Although it might be a long road to recovery that requires much effort and initiative on your part (depending on the size, complexity, and focus of your organization), the starting point is clear. So here’s a simple step-by-step guide to get you on the right path.
- Do a real spend analysis.
- Bring in category experts to get you real savings on your most profitable tier-1 categories.
- Implement e-Procurement systems to realize the savings.
- Adopt e-Sourcing to streamline and maximize the savings potential on your tier-2 categories.
1. Do a real spend analysis.
I’m not talking about loading your AP data in a UNSPSC cube and running out-of-the-box reports on your top ten 10 vendors, top 10 categories, and top 10 departments. Even if you don’t know the exact amounts, a simple internal survey will tell you those with uncanny accuracy. I’m talking about loading all of your spend-related data — AP, Invoice, Contract, Third-Party Price Indices, etc. — in a real spend analysis product that will let you slice and dice it any way you can think of so that you can identify (a) where you have made overpayments and extract refunds and (b) identify the top ten categories with with the most savings potential. If you haven’t done this before, you’ll want to bring in an expert. There a few providers in this space that typically find tens of thousands, and sometimes hundreds of thousands, of dollars in overpayments within a week. The ROI is well worth the investment.
2. Bring in category experts.
This is especially important in categories, like energy and telecommunications, that require significant expertise that you might not have. While you might be able to negotiate a 15% cost decrease in a buyer’s market if you’re well informed, a seasoned veteran who has been negotiating these deals day in and day out for a decade (or two) will find a way to save you 30%. And when many of the firms will work on contingency, i.e. you don’t pay until the new contract is cut for an amount less than what you’re paying now, the ROI will be significant.
3. Implement e-Procurement.
Up to 60% of negotiated savings never materialize at many companies. If you don’t implement state-of-the-art e-procurement systems with price control capabilities (contract integration, punch-out price verification, authorizations for off-contract spend), you too could lose 60% of the savings you negotiated.
4. Adopt e-Sourcing.
While you’ll want to bring in the big-guns for the big savings opportunities, as the ROI will be many times what the big-guns cost you, there will be a large number of tier-2 categories where the savings opportunities, though substantial, won’t be as significant if you have to pay high-powered consultants. These are the categories where you get your best returns if you can run the events quickly, and efficiently, in house. And this is what e-Sourcing allows you to do … especially on categories where you need to go back to market regularly because the volatility is too high to risk long term contracts.
It literally is this simple … because once you’re on the right track, you’ll have no trouble staying on the rails.